An aggressive portfolio with high concentration in healthcare and limited geographic diversification

Report created on Jan 4, 2025

Risk profile Info

6/7
Aggressive
Less risk More risk

Diversification profile Info

1/5
Single-Focused
Less diversification More diversification

Positions

The portfolio is heavily weighted towards Arcutis Biotherapeutics Inc, comprising over 46% of the total. This creates a significant concentration risk, as a single stock dominates the portfolio. While this can lead to high returns if the stock performs well, it also increases vulnerability to company-specific risks. A more balanced composition, with exposure to a broader range of assets, could help mitigate this risk and enhance stability. Diversifying across more stocks or funds could align the portfolio closer to common benchmarks, which typically spread risk across multiple holdings.

Growth Info

The portfolio has demonstrated a strong historic performance with a Compound Annual Growth Rate (CAGR) of 13.86%. This suggests that the portfolio has been capable of delivering substantial returns over time. However, it also experienced a significant maximum drawdown of nearly 40%, indicating high volatility. While past performance is informative, it does not guarantee future results. To manage potential future volatility, consider incorporating more defensive assets to balance the risk-return profile, especially if market conditions change.

Projection Info

Using Monte Carlo simulations, the portfolio's potential future outcomes vary widely. These simulations use historical data to project possible future performance, showing a 5th percentile outcome of -60.44% and a 67th percentile of 477.48%. While the median scenario suggests strong growth, the range indicates significant uncertainty. This underscores the importance of diversification, as relying heavily on a few assets can lead to unpredictable results. Consider adjusting allocations to reduce downside risk while maintaining growth potential.

Asset classes Info

  • Stocks
    91%
  • Cash
    9%

The portfolio is predominantly composed of stocks, accounting for over 90% of the total. This high equity exposure aligns with an aggressive investment strategy but may lack diversification benefits. The minimal allocation to bonds and cash suggests limited protection against market downturns. Typical balanced portfolios include a mix of stocks, bonds, and cash to spread risk. Consider increasing exposure to bonds or other asset classes to enhance diversification and potentially smooth returns over time.

Sectors Info

  • Health Care
    51%
  • Technology
    15%
  • Financials
    6%
  • Telecommunications
    4%
  • Consumer Discretionary
    4%
  • Industrials
    4%
  • Consumer Staples
    2%
  • Energy
    2%
  • Consumer Discretionary
    1%
  • Real Estate
    1%
  • Utilities
    1%
  • Basic Materials
    1%

The portfolio is heavily concentrated in the healthcare sector, which comprises over 51% of the total allocation. While this sector can offer growth opportunities, it also introduces sector-specific risks, such as regulatory changes or technological disruptions. A diversified sector allocation typically provides more stability by spreading risk across different industries. To mitigate sector concentration risk, consider reallocating some investments to underrepresented sectors, which could help balance the portfolio and reduce volatility.

Regions Info

  • North America
    91%

Geographic exposure is overwhelmingly skewed towards North America, with over 90% allocation. This limits the portfolio's diversification benefits and exposes it to regional economic risks. Global diversification can provide access to growth opportunities in different markets and reduce reliance on a single region's economic health. Consider increasing exposure to international markets to enhance geographic diversification, which can help mitigate risks associated with economic downturns in North America.

Redundant positions Info

  • SCHWAB TOTAL STOCK MARKET INDEX FUND SELECT SHARES
    VANGUARD TOTAL STOCK MARKET INDEX FUND ADMIRAL SHARES
    High correlation

The portfolio contains highly correlated assets, particularly between the Schwab and Vanguard total stock market funds. High correlation means these assets tend to move together, limiting diversification benefits. In market downturns, correlated assets may decline simultaneously, increasing overall portfolio risk. To improve diversification, focus on including assets with low correlation to existing holdings. This can help reduce volatility and provide a more balanced risk-return profile, particularly during turbulent market conditions.

Risk vs. return

This chart shows the Efficient Frontier, calculated using your current assets with different allocation combinations. It highlights the best balance between risk and return based on historical data. "Efficient" portfolios maximize returns for a given risk or minimize risk for a given return. Portfolios below the curve are less efficient. This is informational and not a recommendation to buy or sell any assets.

Click on the colored dots to explore allocations.

The portfolio's current allocation could be optimized for better risk-return efficiency using the Efficient Frontier framework. This approach identifies the best possible risk-return ratio by adjusting asset weights. However, the presence of highly correlated assets limits diversification benefits. Before optimizing, consider removing overlapping assets to enhance diversification. An optimized portfolio could achieve a higher expected return with the same risk level, supporting a more efficient investment strategy aligned with the investor's goals.

Dividends Info

  • Schwab U.S. Dividend Equity ETF 3.60%
  • Schwab U.S. Large-Cap Growth ETF 0.40%
  • iShares® 0-3 Month Treasury Bond ETF 5.10%
  • VANGUARD TOTAL STOCK MARKET INDEX FUND ADMIRAL SHARES 1.30%
  • Weighted yield (per year) 0.98%

The portfolio's overall dividend yield is relatively low at 0.98%, with the highest yield coming from the iShares 0-3 Month Treasury Bond ETF at 5.1%. Dividends can provide a steady income stream and contribute to total returns, especially in low-growth environments. Investors seeking income may consider increasing exposure to higher-yielding assets. However, it's important to balance yield with growth potential and risk, ensuring that dividend-paying investments align with the overall investment strategy.

Ongoing product costs Info

  • Schwab U.S. Dividend Equity ETF 0.06%
  • Schwab U.S. Large-Cap Growth ETF 0.04%
  • iShares® 0-3 Month Treasury Bond ETF 0.07%
  • SCHWAB TOTAL STOCK MARKET INDEX FUND SELECT SHARES 0.03%
  • VANGUARD TOTAL STOCK MARKET INDEX FUND ADMIRAL SHARES 0.04%
  • Weighted costs total (per year) 0.02%

The portfolio benefits from impressively low costs, with a total expense ratio (TER) of just 0.02%. Low costs enhance long-term returns by minimizing the drag on performance. This aligns well with best practices for cost-effective investing. Maintaining low fees is crucial for maximizing net returns over time. Ensure that any changes to the portfolio, such as adding new funds or ETFs, do not significantly increase the overall expense ratio, as this could erode potential gains.

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